The Returns On Capital At Enjoy (SNSE:ENJOY) Don't Inspire Confidence

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Enjoy (SNSE:ENJOY), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Enjoy:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.018 = CL$13b ÷ (CL$888b - CL$159b) (Based on the trailing twelve months to June 2022).

Therefore, Enjoy has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 5.3%.

Check out the opportunities and risks within the CL Hospitality industry.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Enjoy's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Enjoy's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.2% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

While returns have fallen for Enjoy in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. But since the stock has dived 97% in the last five years, there could be other drivers that are influencing the business' outlook. Therefore, we'd suggest researching the stock further to uncover more about the business.

One more thing: We've identified 5 warning signs with Enjoy (at least 4 which are potentially serious) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.